July 5, 2021
Nikkei Inc.
Changes to the Index Guidebook and the Constituents Selection Rules of
the Nikkei Stock Average
From May 10 to June 13, Nikkei consulted about the changes to the presumed parvalue and other methodologies of the Nikkei Stock Average (Nikkei 225). Nikkei asked
6 questions and the majority of the answers to all of these questions were affirmative.
As a result, Nikkei concluded that its proposals were supported. At the same time,
however, Nikkei received multiple opinions asking further clarifications of the topics suchas the timing of the post-announcement adjustment of the Price Adjustment Factor underdrastic price fluctuations of a new constituent. To meet such requests, Nikkei partiallyrevised the proposed amendments as presented in Exhibit 1 “Details of the changes to theIndex Guidebook and the Constituents Selection Rules”.
In addition to the 6 specific questions, Nikkei also invited consultation participants’“opinions and ideas to further improve the Nikkei 225” as question No.7. Summary ofcomments to the question No.7 is shown in Exhibit 2. Nikkei intends to improve thequality of the Nikkei 225 based on these comments.
------------------------------------Above change from “presumed par value” to “price adjustment factor” and setting
rule of the price adjustment factor to new constituents are applied also to the Nikkei 500
Stock Average and Nikkei JASDAQ Stock Average (*). Please note there will be no 1%
cap for new constituents nor limitation of the number of constituents change in a periodic
review. Refer to the Index Guidebook of these indexes for details.
(*) Due to closure of the JASDAQ market by the Tokyo Stock Exchange under its trading
section reform planned to become effective in April 2022, Nikkei ceases to calculate andpublish the Nikkei JASDAQ Stock Average with the final calculation on April 1, 2022.

Contact: https://www1.entryform.jp/nikkei_indexes_contact_en/
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Exhibit 1: Details of the changes to the Index Guidebook and the Constituents Selection Rules(Changes are underlined. Changes after the consultation is in bold)① Change from “Presumed Par Value” to “Price Adjustment Factor”, and amendment to the setting rule for new constituents (effectivefrom the 2021 Periodic Review)[Index Guidebook] 3: Calculation method
Current Rule

Proposed rule at consultation

New rule after consultation(Preamble)
The Nikkei225 is calculated as a weighted
price average where the sum of theconstituent stock prices adjusted by the(Preamble)(Preamble)
The Nikkei225 is calculated as a weighted Same as the left
price average where the sum of theconstituent stock prices adjusted by thepresumed par value is divided by the price adjustment factor is divided by thedivisor.
divisor.
Adjusted stock price
Adjusted stock price= stock price x 50 (yen) / presumed par = stock price x price adjustment factor
value (yen)Nikkei Stock Average = sum of Adjusted Nikkei Stock Average = sum of Adjusted
stock price / Divisor
stock price / Divisor2(2) Presumed par value (final sentence)…
Nikkei uses “presumed” par value which
succeeds the ex-par value, and adjust theconstituent prices to the presumed par value(2) Price adjustment factorof 50 yen base.

be assigned when the price of such stock
exceeds 1% of the sum of constituent prices.
It is set at the highest value which does notexceed 1% of the sum of the prices by 0.1interval.

(2) Price adjustment factor

The price adjustment factor (PAF) of a stock The price adjustment factor (PAF) is ato be added to the Nikkei 225 is 1 provided number which adjusts prices of thethat the value other than 1 (0.1 to 0.9) may constituents. PAFs are set and revised
as follows.
① Setting PAF

The PAF of a stock to be added to theNikkei 225 is 1 provided that the value otherthan 1 (0.1 to 0.9) may be assigned when thePAF = sum of Adjusted stock price of the price of such stock exceeds 1% of the sum
constituents x 1% / the stock price of the of constituent prices. It is set at the highest
new constituent.
value which does not exceed 1% of the sumNote) RAF is evaluated on the base date and of the prices by 0.1 interval.
rounded down to the nearest 0.1.
PAF = sum of Adjusted stock price of theHowever, if the stock price of the new constituents x 1% / the stock price of theconstituent fluctuates drastically after the new constituent.
base date until the effective date of the Note) PAF is evaluated on the base date andchange, the PAF may be adjusted.
rounded down to the nearest 0.1.
When a stock of a newly established3

holding company is added replacing thedelisting original company, value otherthan 1 may be set in accordance with theratio of stock transfer, etc. in theestablishment of the holding company.
Also note that if the stock price of the new
constituent fluctuates drastically after thebase date until the effective date of thechange, the PAF may be adjusted. In thiscase, such an adjustment will beannounced at least 5 business days before
the effective date in principle.
(2) Presumed par valueNone③ Nikkei announced “Measures to large
scale reverse splits” on June 7, 2005.
According to the announcement, inprinciple, the presume par value is changed
to keep the level of the price unchanged
when a stock goes a large scale split orreverse split.
When a stock with
presumed value of 50 yen goes 1 to 2 split,(2) Price adjustment factor② Revising PAF
PAF is revised under following situation.
- Large-scale stock split or reverse split
When a constituent goes for a large-scale
stock split or reverse stock split, PAF isrevised to keep the price level of such a4the presumed par value will be changed
from 50 to 25 (=50/2) yen.

constituent unchanged before and after
the split/reverse split. However, since
the PAF has only 1 digit after the decimal
point, above adjustment calculation
might result in a fraction. Also, if a result

In some cases such as a split of 1 to 3, thepresumed par value will not be a dividable
number, such as 50/3 yen. However, when
the price is adjusted to 50yen par value
base, its adjusted price will be 3 times as theoriginal price (50 / (50 / 3) = 3) and does notleave a fraction.

of calculation is less than 0.1, PAF will be
set as 0.1. In these cases, the adjusted
price before and after the split/reverse
split are different. Such difference will
be adjusted by the divisor. Revision ofPAF under large scale stock split orreverse split will be announced at least 5days before
principle.

(3) Divisor①Divisor is changed when the following
events happen.
i) Changes in the constituentsii) Corporate action such as split, reversesplit, paid-in capital increase. However,when the split or the reverse split is in thelarge scale, presumed par value may beNonetheeffective

datein(3) Divisor①Divisor is changed when the following
events happen.
i) Changes in the constituentsii) Corporate action such as split, reversesplit, paid-in capital increase. However,when the split or the reverse split is in thelarge scale, price adjustment factor may5adjusted and the divisor may not bechanged.

be revised, and the divisor may not bechanged so long as the adjusted price isunchanged before and after such
split/reverse split.

In setting PAF for a new constituent, we acknowledged a comment that not only a price level, but a size of market value should beconsidered. In the course of future reviews, Nikkei will examine a rule incorporating this comment.
② Upper limit to the number of constituents change in periodic review (effective from the 2021 Periodic Review)[Constituent Selection Rules] 2: Rules of the Periodic Review
Current Rule

Proposed rule at consultation

New rule after consultation(Preamble)
Constituents are reviewed annually inaccordance with the following rules.
Results of the review become effective on
the first trading day of October and there is(Preamble)
Constituents are reviewed annually as
evaluated at the end of July (base date) inaccordance with following rules. Resultsof the review become effective on the first(Preamble)
Constituents are reviewed annually asevaluated at the end of July (base date) in
accordance with following rules. Resultsof the review become effective on the firstno limit to the number of constituents trading day of October. The maximum trading day of October. The maximum
reshuffled.
number of the constituents reshuffled is 3. number of the constituents reshuffled is 3.
However, constituent change due tocorporate reorganization near the timeof periodic review is not included in the6limit of 3 above.

Regarding the rule to limit the number of constituent change in a periodic review up to 3, we acknowledge comments that this rule mayhamper regeneration of the index constituents. Nikkei will continue to examine a constituent change rule which will keep the index up
to date while limiting impact on the market.
③ Subject market change to the Prime Market from the 1st section of the Tokyo Stock Exchange (effective from April 2022)[Constituent Selection Rules] 1: Constituents, first paragraph
Current Rule

Proposed rule at consultation

New rule after consultation

The Nikkei225 is calculated with 225 The Nikkei225 is calculated with 225 Same as the left
market representative stocks from the market representative stocks from theTokyo Stock Exchange First Section.
Tokyo Stock Exchange Prime Market.

[Constituent Selection Rules] 2: Rules of the Periodic Review
Current Rule

Proposed rule at consultation

New rule after consultation(1) High Liquidity Group
Choose highly liquid stocks from theTokyo Stock Exchange First Section andgroup them as the “High Liquidity Group”.

(1) High Liquidity Group
Same as the left
Choose highly liquid stocks from theTokyo Stock Exchange Prime Market andgroup them as the “High Liquidity Group”.

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[Constituent Selection Rules] 3: Extraordinary Replacement Rules
Current Rule

Proposed rule at consultationNew rule after consultation(1) Deletion for special reasons(1) Deletion for special reasonsSame as the left
Constituents removed from the Tokyo Constituents which meet the following
Stock Exchange First Section due to thereasons below and others are deleted fromthe index.
i) Designated as a Securities to bedelistedii) Delisted due to corporate restructuring
such as merger, share exchange orshare transferiii) Transfer to the Second Section(3) Timing of the constituents change
The effective date is announced for eachevent.

criteria are deleted from the index.
i) Designated as Securities to be delisted
or Securities on Alertii) Delisted due to corporate restructuring
such as merger, share exchange orshare transferiii) Transfer to the market other than thePrime(None)(3) Timing of the constituents change
The effective date is announced for eachevent.

i) Designated as a “Security to be delisted”:i) Designated as a “Security to be delisted” orfive business days after the designation.

“Security on alert”: five business days afterthe designation.

8④ Expansion of the digits under the decimal of the divisor (effective from June 2022)[Index Guidebook] 3: Calculation method, (3) Divisor ③ Digits under the decimal
Current Rule

Proposed rule at consultation

New rule after consultation

4th digit is rounded to make the divisor to 9th digit is rounded to make the divisor to Same as the left
have 3 digits after the decimal point.
have 8 digits after the decimal point.

[Note]In addition to the above amendments, simple replacements of the words/concepts, such as change from the presumed par value to the priceadjustment factor, are made to the text of the Index Guidebook and the Constituent Selection Rules. Some explanations of the Index
Guidebook are edited to clarify the meaning and old examples of presumed par value and divisor are deleted. Please refer to the revised
Index Guidebook and Constituent Selection Rules for detail. The revised version reflects the changes which become effective from theperiodic review of 2021 (introduction of price adjustment factor and related rules (① above), and upper limit of constituents change in aperiodic review (② above)).

Subject market change (③ above) and expansion of the digits of the divisor (④ above) will be applied tothe Index Guidebook and the Constituent Selection Rules in April and June 2022 respectively.

9Exhibit 2: Summary of comments to Q7 “opinions and ideas to further improve the Nikkei225”
In this consultation, Nikkei asked a general question (question No. 7) regarding possible
measures to maintain and improve the quality of the Nikkei 225. Please find below thesummary of the comments to this question No. 7[from Security & Financial institution]
In selecting the constituents, discretion of Nikkei shall be removed at a maximum level.
For the liquidity, “magnitude of price fluctuation by volume” is not easily calculated
and not closely related to true liquidity. Use trading value only is recommended.
[from Security & Financial institution]
It is not desirable that only a few highly priced constituents mostly determine the index.
Price adjustment factor of extremely high price stock may be lowered to cap the weighte.g. maximum weight of 5%. Also, a system to adjust the PAF to 1 may help balance
the weight of the constituents automatically. Considering continuity of the index,
such rule changes may be implemented in steps.
[from Security & Financial institution]
The next task will be to consider setting a weight cap (e.g. 10%) using the priceadjustment factor at the periodic review. Also, in case of deletion of a highly weighted
constituent, PAF of new and current constituents may be modified to mitigate impactof large basket trading.
[from Security & Financial institution]
Rules to set a weight cap such as 10%, like the one introduced to TOPIX and deletionof constituents which have lower than a specific threshold weight may be considered.
When a methodology or policy change is announced, the discussion process and reasonof decision should also be published.
[from Security & Financial institution]
Price adjustment factor of current constituents should also be changed. If weight of
constituents in the index is far from the market value weight, such constituents might
be used to manipulate the index as the index is also an underlying asset of futures
trading.

Further transparency of sector balancing process or publication of the names10

of professionals to whom Nikkei consults should be considered.
[from Security & Financial institution]
A criterion to cap the maximum weight of a single security in the index at 8% isrecommended. Fast Retailing is over 10% of index weight; however, due to low freefloat shares, the stock is relatively less liquid and more expensive to trade.
Index
providers abroad also implement caps on single stock weight to ensure diversificationof the index.
[from Self-employed, Individual, Others]
Current situation where Fast Retailing or Softbank Group have high weights in theindex is not fair. Influence shall be evaluated by market value as TOPIX. Also someof large and high market value stocks are not included in the index. Improvement inthis area is requested.
[from Self-employed, Individual, Others]
There are large discrepancies among the constituents’ weights. The difference should
be within 10 times. To this end, price adjustment factor of current constituents, inaddition to new ones, should be reviewed periodically.

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